Does anyone grasp the concept of VAT (value added tax?)

  • Back when I was a freelance designer, I would charge my client with VAT on top of the service fee we have agreed (after my business income reached about 5000 usd with in 12 months). I never understood how this actually works. But I was told it is something the clients kind of get back anyway.

    Then I started working as an illustrator, my artist friends told me there is no VAT for book illustration, so I do not have to do anything. But then, my account and a lawyer from the graphic arts association here in Norway told me that it is a complicated issue. I am running my illustration business via a limited liability company (LLC) - something I registered for my design business back in the days, I just kept using it. The lawyer told me that gallery artists do not need to pay VAT. If I want to be classified into the same category as independent artists, I should do business as one-person company, rather than an LLC. But he also admit he is not 100% sure.

    I know different countries have different tax rules and regulations. But I am curious if any of you need to juggle with VAT? and know what it is, and how it works?

  • Hi Xin, VAT can be quite complicated. it very much depends on your country. Your accountant should be the one to be able to tell you your local rules. personally i would have some concerns about his knowledge if he doesnt know the rules.
    Here in the UK you dont have to be VAT registered until you go over a turnover threshold of i think about £60k or you can choose to be VAT registered if you really want to but it not something many do as there are not many advantages for a small business. some publishers that you work with might find it benefical if you are VAT registered but Someone like Jake, lee or will would be better qulified to answer that.
    You really need to have an accountant that knows the rules locally to get the best advice for your business.

    not sure if that helps.


  • @James-Toogood Thank you so much. The Norwegian VAT turnover threshold is ridiculous small compared to the UK threshold (about £4k). Actually both my accountant and the lawyer could not answer my question straight forward, which was a bit frustrating. I did not want to call the tax office, as I have a huge anxiety dealing with this type of bureaucracy, and irrational fear talking to bureaucrats in general - the kind of fear I have is probably enough to fill a 32 pages picture book :-).

    I am going to talk to my accountant over the phone to see if she can help me in anyway to figure out things.

  • Hi Xin! I'm based in Sweden but I don't know how similar our rules are. But I run a one person-business and add VAT to my fees. For book illustrations the VAT is 6% and for editorial it's 25%. I don't really know what the threshold is for when you have to add VAT, but I know there is one 😛 I also know there are seperate rules for selling fine art and that you don't have to add VAT up to a certain point. Here I usually ask "Skatteverket" (The tax authorities) about these things, but sometimes even they don't have the answer haha. I dont' know if this was helful at all, sorry 😂 I'll follow this thread though!

  • @KajsaH hahaha... I asked illustrator friends, owner of people who run creative space, finance advisor at the graphic arts association in Norway, and my accountant. Everyone tells me different things. Things got more complicated since the majority of my clients are from abroad.

    So it looks like I have to call the tax office tomorrow, and I am sure they would not know 100% either. This is the nature of bureaucracy. hahahaha....

  • @xin-li (immediate disclaimer here because as you know I do not deal directly with VAT except once in a while as a U.S. consumer and just want to comment to show support) Is it possible that no one has direct answers to your questions because the risk of penalty for noncompliance is very low? This is the kind of question I need to ask myself before speaking to bureaucrats, both to calm my fears and to keep my efforts in check, because in the past they often like to make noncompliance seem so egregious in order to make sure the public stays in line.

    Edited to add: basically bureaucrats scare me and good luck tomorrow!

  • Turned out the tax office knows everything in this case. hehe... and they are very nice too. Here is the gist of it:

    • Exporting service is 0% VAT in Norway. So if my clients are outside of Norway, I put 0%VAT on the invoice. I have to do paper work though - registering, sending in report, etc.
    • If I run a One-man company, I can choose to not registering for VAT as my service can be categorised as selling artwork, and it is exempt from VAT. But if I run a LLC for my business I have to register for VAT, and add 25% VAT for my Norwegian clients.

    I can choose to switch doing my illustration business form a one-man company instead. I am not sure what is the best. I think I will ask my accountant to help out with that.

    I am really anxious when dealing with paper work. I need to write down on my note book that Tax office is not a monster. If it is, it is a nice monster.

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